Baby bonus slashed as Wayne Swan delivers new round of spending cuts

Phillip Coorey and Judith Ireland

Oct 22 2012 at 10:38 AM

Slashed... baby bonus Photo: Simon Bosch

The federal government has targeted company tax, the baby bonus and private health insurance as part of a new round of spending cuts which will deliver it a forecast surplus of $1.1 billion this financial year, $400 million less than forecast at the May budget.

See Also

The savings include cutting the baby bonus from $5000 to $3000 for the second and each subsequent child, and reducing the level of rebate the government will provide for private health insurance.

Treasurer Wayne Swan said it was "absolutely appropriate" that the government stuck with its surplus goal.

On the cuts to the baby bonus, he said that many families received strong Commonwealth support through the tax system, citing Family Tax Benefits and paid parental leave.

‘‘Most families don’t face the same upfront costs for a second or third child as they do for the first.

"We believe these changes to the baby bonus will bring it more into line with the actual costs of having children," he said.

Declining commodity prices have led to a crash in forecast receipts from the mining tax from a $13.4 billion over four years to $9.1 billion.

Combined with the mining tax crash, a $1.1 billion blowout in the cost of asylum seekers for this year, and other changes, the budget has lost $3.9 billion in tax receipts for this financial year since the May budget and $21 billion over four years.

The changes to private health insurance will save $700 million over three years and will start in April 2014. In the May budget, the government means-tested the private health insurance rebate to save about $2.8 billion over four years.

Under the new cuts, which will increase the cost of all premiums, the government’s 30 per cent rebate will no longer automatically be increased to match the annual increase in premiums.

Instead, the rebate will be indexed to inflation, which is less than the premium increases. But if the premium increase is less than inflation, the rebate will be indexed to that.

The cuts to the baby bonus will begin on July 1, 2013, and will save $461 million over three years.About $500 million in education grants have been frozen.

The Families Minister, Jenny Macklin, said the baby bonus change, for babies born on or after July 1 next year, recognises the fact families buy the big-ticket nursery items when their first child is born.

‘‘Most families don’t face the same upfront costs for a second or third child as they do for the first.

'‘It’s important that the family payment system is sustainable into the future.’’

Finance Minister Penny Wong said the mid-year outlook showed the government was returning to surplus.

‘‘In preparing the [Mid-Year Economic and Fiscal Outlook], the government has again made responsible savings and prioritised important social reforms in line with Labor values of fairness, equality and opportunity, and to protect low and middle-income earners and the most vulnerable in our community,’’ Senator Wong said.

Private Healthcare Australia chief executive Michael Armitage said the change to the indexation of the private health insurance rebate would lead to people paying more for cover.

"Health inflation runs at a figure significantly higher than the consumer price index (CPI) and therefore it is likely that consumers will be paying more for their private health care,'' Dr Armitage said.

A spokeswoman for the nation's largest health insurer, Medibank Private, said ''a range of other reforms will be required to ensure that this does not lead to an adverse impact on the overall cost of health insurance for all Australians".